Great article, I didn't realise the effect vacant land has on urban planning. Land tax seems a very blunt tool to achieve better planning outcomes.

It's great to see another article which focuses on the unproductive economic activity of land speculation for which the rest of us pay.

More has been written on this on other threads, See:

* forum in response to Peter Saunders' "They're not really that poor" at http://forum.onlineopinion.com.au/thread.asp?article=6576#98116

* forum in response to Peter Saunders' "Defining Poverty" at: http://forum.onlineopinion.com.au/thread.asp?article=3737#12173

* forum in response to Andrew Bartletts' "A crisis in housing affordability" at http://forum.onlineopinion.com.au/thread.asp?article=4834#53462

* forum in response to James Sinnamon's (i.e. myself) "Living standards and our material prosperity" at http://forum.onlineopinion.com.au/thread.asp?article=6326#93845

Some questions I have:

I'm, not quite sure why it is in the interests of property speculators to hold on to 399 vacant allotments in Bluestone Ward. Perhaps someone's worked through the figures and calculated that they will still be ahead. If so, the appreciation in property value would have to be scary to offset the rental income foregone as well as rates and land taxes paid in the meantime.

Another point: even if 1,058 extra people could be accommodated in an extra ward, what would that the crowding do to the quality of life? How would the existing infrastructure to supply water, electricity, transport services, etc, cope?

I say this because I don't see any easy solution to the housing affordability crisis whilst the population increases at the current rate. This is in fact welcomed and anticipated by property speculators, in order to increase the value of their socially unproductive investments.

Whilst I dont deny that speculation has an impact on housing availability and affordability, the author has let at least one furphy slip into the article...
"An example is 62-64 Geelong Rd, Footscray. The property was bought for $510,000 in 2000. Just seven years later it was sold for $970,000. What did they do? Nothing - the property was left vacant. Are such paper shuffling profits justified? Should they be supported with low capital gains and negative gearing? Should they pay less tax than the lowest wage earners?"
The prima facie taxable gain on this is $230,000 (50% discount for holding for more than 12 months), with tax at a marginal rate of 46.5% - that's hardly lower than the lowest wage-earner. Even assuming it was jointly held, the tax rate would still be 40.5%. AND there is no negative-gearing allowed if the property is not available for rent. If its been deliberately withheld from the market, interest is not deductible (it will come into the CGT calculation, but its effect as a deduction is then effectively halved).

Added to that it is not paper-shuffling profits. The investors take a serious risk that the market will fall (as it has in Sydney for example), and they could end up in a loss situation. They also tie-up their capital for several years, that could be earning money else-where.

Land tax is paid at the same rate on vacant land as it is on income-earning land (its LAND tax, not development tax).

When I first heard about the negative gearing scheme
And very little capital gains tax.
For housing investment I was shocked.

This is the most blatant tax hand out to the Rich
I have ever seen.
This combined with the work choice laws.
Reducing the wages of low skilled workers

Why is Australia allowing foreign investors purchase houses?
As they can obtain finance at far lower rate than an Australian can.

I can see why Howard was voted out.

northerner, read my response on capital gains tax and land tax (as well as the reference to negative gearing). The benefits are NOT as great as many would have you believe, and are no different to taxation on any other income-earning activity (that is, you can claim any deductions relating directly to the earning of your income). Capital gains tax on investment properties are no different to any other asset. There is no special treatment.

Further more, if you discriminate in what deductions you allow a housing investor compared to other investment types, you will see droves of investors leave the market. More importantly, there will be much less new development, leading to continual tightening of the market. On top of that the investors that remain in the market will need to increase rents in order to compensate for the denial of tax deductibility of expenses.

Negative gearing is a risk taken that whilst rents are lower than expenses (yes, this means that bank payments must be met out of the pockets of investors), capital appreciation will make up for the forgone income in the medium to longer-term. It is a RISK, and one that sends some property investors to the wall. The vast majority of property investors are normal mums and dads (middle-class) that own 1-2 properties, not big tycoons that never pay any tax.

I am about to run out of word limit and posting ability, but once I can get back on, am happy to answer any questions about the true nature of tax on property investors.

It has been long recognised by all senior economists that deriving public income from site value is a sensible nethod. It makes no sense to punish/tax people for producing goods and services, whether by labour or capital investment, whilst rewarding those who derive their income from land-rent (cf., http://www.taxreform.com.au).

For country gal, there really on four ways that land speculators can lose money:

a) Population declines thus reducing demand for land.
b) The government releases land that has been withheld, thus increasing supply of land.
c) There is a general economic downturn or
d) There is a collapse in the land-market due to speculative overinvestment.

I suspect in Sydney's case option (d) contributed significantly.

As a country gal, I would have suppose that you would have supported a site rental scheme; historically that's where it's been most popular. It gives growth to country towns!

Regards,

Lev